Only certain residential properties qualify for a 1031 exchange

 Dear editor,

As Deborah Scott of Van Hook Properties correctly said, residential properties can certainly be used in 1031 exchanges. This is typically if they are rental properties.

One's main residence does not qualify for a 1031 exchange, although profits on the sale are tax-free up to certain amounts, $250,000 for single persons and $500,000 for married couples.

An interesting question is whether a second/vacation home, never rented out, can qualify for a 1031 exchange.

One's immediate response is, "Of course not." But this is not necessarily correct. The IRS code requires that the exchanged property must to be held for investment purposes.

One can exchange an apartment building for non-income producing vacant land.

Why not for a condo in a high growth area that the purchaser has the intention of selling, eventually, for a profit?

This was accepted by the IRS in a Private Letter Ruling (PLR) 8103117. Of course, the Private Letter Ruling only applied to this case.

To qualify for an exchange, the property owner should be able to support that the property was acquired and held for investment.

Norman Linton

The Mahr Company

Tampa